Gift in contemplation of death- means

Though exempt but only in case of movable properties 

Under clause (d) of the second proviso to section 56(2)(vii), any sum of money or  any property received ‘in contemplation of the death of the payer or donor’ is granted exemption from tax. What is contemplation of death has not been defined any where in the act and rules.

 The word “contemplation” as per dictionary meaning stands for in anticipation

Gift in contemplation of death otherwise known as donatio mortis causa was defined in Explanation to Sec. 8 of the Estate Duty Act, 1953 (now not in force) by making a cross reference to Sec. 191 of the Indian Succession Act, 1925. Such a gift had also found its way as an excepted gift in Sec. 5(1)(xi) of the Gift Tax Act, 1950. The definition for the same in Sec. 191 of the Indian Succession Act, 1991 reads as under:

"191. Property transferable by gift made in contemplation of death. —

(1) A man may dispose, by gift made in contemplation of death, of any moveable property which he could dispose of by will.

(2) A gift is said to be made in contemplation of death where a man, who is ill and expects to die shortly of his illness, delivers to another the possession of any moveable property to keep as a gift in case the donor shall die of that illness.

(3) Such a gift may be resumed by the giver; and shall not take effect if he recovers from the illness during which it was made; nor if he survives the person to whom it was made."

Two important requirements laid down in this sub-section are, (i) the donor must be ill and expects to die shortly of the illness, and (ii) possession of the property should be delivered to the donee, apparently during the lifetime of the donor.

So in nutshell we can say it is that gift of movable property even though not by the relative(As defined in section 56), which takes effect on the death of the donor. If the donor recovers or the donee predeceases, the gift reverts to the donor. The gift of immovable property under contemplation of death is not permitted.  For making such gift, it is not necessary that the donor should be already on his death bed when he made such a gift and valid gift in this case can be made by person suffering from incurable deceases or a person about to undergo a serious operation which may prove fatal(may die) or a soldier about to depart on active service in time of war(may or may not return back).